DOL rule or not, be prepared to defend investments, fees under a fiduciary standard

Whatever the fate of the Labor Department's regulation, the best-interests cat is out of the bag, a panel tells advisers at the TD Ameritrade conference

Feb 1, 2017 @ 6:38 pm

By Jeff Benjamin

Even though the status of the Department of Labor's fiduciary rule has been essentially up in the air since the election of Donald Trump, financial advisers should be preparing for the new realities of it given all the attention that has been paid to the controversial rule.

“Be prepared to define, document and defend your actions to regulators,” said Joe Taiber, managing partner at Taiber Kosmala & Associates, an investment consulting firm.

“Define what you're doing for the client, document the initiative and be prepared to defend how you arrived at the investment recommendations,” said Mr. Taiber, who was part of a panel discussing the impact of the DOL rule to a packed room at the TD Ameritrade LINC 2017 gathering Wednesday in San Diego.

Even though it was acknowledged by the panel that President Trump and some members of his administration have been vocal opponents of the DOL rule, which is set to take effect in April, they encouraged financial advisers to proceed as if the rule will stay on schedule.

“There are a few routes the new administration can take to try and delay or repeal the law, but as of now it is the law, and I think the industry has become convinced that this is happening,” said Jean-David Larson, director of regulatory and strategic initiatives at Russell Investments.

(More: RIAs could be ultimate winners if DOL fiduciary rule is repealed or delayed)

The message was clear that financial advisers of all stripes will need to continue to pay attention and be ready to adapt.

“Regardless of what happens, the cat's out of the bag now, because clients are more educated,” Mr. Taiber said. “Whether the full rule is implemented or delayed, it doesn't matter to the end user.”

With that in mind, advisers were warned to accept the new reality that even the fuzzy concept of fiduciary responsibility has gained traction among consumers. Thus, if and when the rule takes effects, those advisers who are already acting as fiduciaries will likely have to work even harder to standout.

While digging into some of the specific challenges facing fee-based advisers, Scott Egner, manager at TD Ameritrade Institutional, suggested they might need to consider moving away from static asset-based pricing for all clients as regulators start taking a closer look at the financial advice business.

“Not every client gets a full financial plan, and not every client needs the same services,” he said. “My sense is that the industry in general has charged an advisory fee that encompassed everything.”

The future, he explained, might include more customized pricing models that include showing clients exactly what they're paying for.

And regulators may more-strongly question, for example, cash balances being included in asset-based advisory fees, or when rollovers from 401(k) plans to individual retirement accounts don't involve additional services for the higher cost.

“The Department of Labor is coming from the position that 401(k)s are better than not 401(k)s, and they are skeptical of whether the rollover is in the client's best interest,” Mr. Larson said. “And then there's the issue of whether the adviser gets a fee for 401(k) assets even if they are left in the plan.”

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